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I have a working understanding of VA's but truth is that in my relatively young career, I haven't used them as much as other FA's in my office. I was having lunch with a friend who is an FA at another firm and he was excitedly telling me about how he was going to use VA's as a Life Insurance policy.

I didn't get it...

Here's what I gathered. Maybe you can help me make sense. The client is a land rich, (relatively) cash poor 89 yr old woman. She'd like to begin transferring her estate now to avoid the Estate Tax for her kids when she passes. My colleague suggested opening VA's in the name of the children and using her cash assets to fund them.

Couple questions - If the child is owner/annuitant of the policy or at the very least, annuitant, will then not have to wait until the surrender is up to access the money? Regardless of whether or not the current client dies one day after the VA's are issued.

Also, why purchase a VA for the kids? Is this the only way to circumvent the Estate Tax? What about an ILIT?

It just didn't make sense, I didn't want to ask him to explain and I was too focused on my delicious Risotto.

This is more of a “gifting” strategy and a way to shift funds out of the estate than using a VA as “life insurance”.

The client is losing control of their money.
It's being locked away from the kids or herself from accessing that money.
Without seeing a proper fact-finder, I think it's a great way to earn commissions and a poor planning strategy.
In any case, calling a VA a life insurance policy is idiotic at best. Criminal at worst.
Life insurance passes to beneficiaries TAX-FREE and uses an amount of leverage. Pennies in the bucket to get out a dollar.
A VA passes to beneficiaries (if owned by the deceased) TAXABLE to the estate and income taxable upon distribution. It is paid for Dollar for Dollar.
A VA doesn't require a medical exam to obtain the product.